China Communications Services Corporation Limited
FAQs

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Q1. How was the business development of the company in the first half of 2014?
During the first half of 2014, in light of the government's initiatives in comprehensively deepening reforms, the Company's development was affected by various impacts brought by the changes in the internal and external operating environments. Among others, the introduction of industrial policies, including the 4G license issuance, was the critical factor affecting the Company's operating performance.

During the first half of 2014, the Company strived to overcome the impacts from the slow growth of overall capital expenditure of the domestic telecommunications operators by actively implementing various strategies and achieved steady operating results. Total revenues amounted to RMB33,743 million, up by 4.3% over the same period last year. Among which, revenue from the domestic telecommunications operator market amounted to RMB20,539million, representing a growth of 0.6% over the same period last year and accounting for 60.8% of total revenues, and aggregate revenues from the Group's two "New Engines", namely the domestic non-operator market and overseas market, amounted to RMB13,204million, representing a growth of 10.5% over the same period last year, and accounting for 39.2% of total revenues and more than 90% of total incremental revenues.
Q2. How was the development of the TIS services in the first half of 2014?
Revenue from the Company's telecommunications infrastructure ("TIS") services for the first half of 2014 amounted to RMB15,453 million, representing an increase of 0.7% over the same period last year and accounting for 45.8% of total revenues. Due to the impact of the slowdown in progress of overall network investment by the domestic telecommunications operators, revenue from TIS services attributable to the three telecommunications operators decreased by 4.1% over the same period last year. Meanwhile, the Company actively expanded into the domestic non-operator market and overseas market, and aggregate revenues from TIS services in these two markets recorded a relatively rapid growth, up by 16.6% over the same period last year.
Q3. Why the BPO and ACO businesses of the Company achieved satisfactory growth in the
       first half of 2014?
The Company endeavored to expand its maintenance business with a view to capture the opportunities arising from the continuously increasing operating expenditure of the domestic telecommunications operators and their demands for outsourcing. Meanwhile, the Company also provided differentiated products and services to domestic non-operator customers in response to the trend of "New Four Modernizations", and thus the businesses of "business process outsourcing ("BPO") services" and "applications, content and other ("ACO") services" became the major growth drivers of the Company's development. Revenue from BPO services for the first half of 2014 amounted to RMB14,911 million, representing an increase of 6.2% over the same period last year and accounting for 44.2% of total revenues. Among which, the revenue from network maintenance services increased by 20.6%. The revenue from ACO services amounted to RMB3,379 million, increased by 13.1% over the same period last year and accounting for 10.0% of total revenues. Among which, revenue from the core ACO services (including system integration, software development and system support, and value added service) amounted to RMB2,635 million, increased by 14.3% over the same period last year, and such growth showed encouraging results from the Company's efforts to promote innovation and transformation and expand into high-value businesses.
Q4. What were the drivers for the growth of the domestic non-operator market and
       overseas market in the first half of 2014?
During the first half of 2014, revenue from domestic non-operator customers amounted to RMB11,460 million, representing an increase of 11.6% over the same period last year and accounting for 34.0% of total revenues. Focusing on the governmental "Smart City", solutions and data centre construction for industrial customers, and the demand for informatization services from small and medium enterprises, the Company has achieved a breakthrough in the development of key businesses and large-scale turnkey projects and entered into strategic cooperation agreements with a number of well-known enterprises. The Company's revenue from overseas market amounted to RMB1,744 million, representing a growth of 3.9% over the same period last year and accounting for 5.2% of total revenues. The Group persistently optimized its overseas business structure by effectively controlling the development of certain businesses with relatively low efficiency and vigorously developing turnkey projects, and the proportion of revenue from turnkey projects to the revenue from overseas market increased to approximately 50%.
Q5. What are the view of the Company towards 4G license and its future prospects?
The development of 4G licensing in China is getting more clarity, and capital expenditure will be further released following the increase in the number of pilot cities of 4G hybrid network in future. While focusing on the development of their core business, the domestic telecommunications operators will continue to outsource their maintenance business, which creates more opportunities for the Group to expand into the domestic telecommunications operator market. The Chinese government has been putting greater efforts to develop strategic emerging industries, strengthen the informatization of manufacturing industries and promote information consumption, which offers the Company with ample opportunities to expand into the markets of domestic non-operator customers and pan-operators (include without limitation to Internet companies and virtual operators). The strong demand in overseas emerging countries for telecommunications construction and the Chinese government's policies of "go abroad" create huge business opportunities for the Group to expand into overseas markets. In addition, China Communications Facilities Services Corporation Limited (the "Tower Company") was established. The Tower Company has indicated to the Company the relevant arrangements of preferential treatment and non-competition, which will offer the Group with new business opportunities and market space.

Looking into the future, the Company will endeavor to overcome adverse influences, and leverage on its deepening reform measures to implement its second round of innovation and transformation, boost internal vitality and encourage innovation, so as to promote its sustainable development. The Group will actively promote the innovation of its business model and operational management model, utilize its financial leverage and operating leverage effectively and realize soft management through Internet-based operation with a view to cut cost and open up more income sources, and ultimately create more value for its customers and shareholders.
Q6. What are the implications to the Company in relation to the establishment of
       Tower Company in China?
The Company believes that the establishment of the Tower Company will promote resources sharing of telecommunications infrastructure facilities among the telecommunications operators and environment protection, lower the overall investment scale and improve investment efficiency of telecommunications infrastructure facilities. The Tower Company has indicated to the Company the relevant arrangements of preferential treatment and non-competition, which will offer the Company with new business opportunities and market space. The Company will continue to proactively respond to changes in the industry and seize new business opportunities, as well as endeavour to create greater value for the shareholders of the Company. (Please refer to the announcement on 11 July 2014 for more details)

Basic Information

Q1. What kind of Company is China Comservice?
China Comservice (China Communications Services Corporation Limited) is a leading service provider in the PRC that provides integrated support services in the informatization sector including telecommunications, media and technology. It is also the largest telecommunications infrastructure service provider in the PRC. Our services include telecommunications infrastructure services (TIS) covering design, construction and project supervision and management; business outsourcing services (BPO) covering network maintenance, distribution of telecommunications services and products, and facilities management; applications, content and other services (ACO) covering system integration, software development and system support, value-added services and other services. (Please refer to "Corporate Profile" and "History" for more details)
Q2. When was China Comservice listed?
The Company was listed on the Stock Exchange of Hong Kong on December 8, 2006. The offering price was HK$2.20 per share. (Please refer to "Corporate Information" for more details)
Q3. Who are the major customers of China Comservice?
All major telecommunications operators in China, namely, China Telecommunications Corporation ("China Telecom"), China Mobile Communications Corporation ("China Mobile") and China United Network Communications Group Company Limited ("China Unicom") are our customers. We also provide services to domestic non-operator customers and overseas customers. In the first half of 2014, revenue from domestic telecommunications operator customers accounted for 60.8% of total revenues, revenue from domestic non-operator customers accounted for 34.0% of total revenues and revenue from overseas customers accounted for 5.2% of total revenues.

While further developing domestic telecommunications operator market, the Group has also endeavored to expand the domestic non-operator market. The Group proactively provides services, such as smart cities solutions, city pipelines engineering, intelligence building and cloud computing data center construction, to key customers such as government agencies and customers in the industries of construction and property, transportation, etc.

Other than China, the Group's business also covers over 50 countries and regions in the world, and its overseas expansion is mainly focused on markets such as Africa, the Middle East, Hong Kong, Macau and South East Asia . The Group also explores Latin America. We provide integrated solutions for ancillary communications networks and integrated informatization solutions for the overseas telecommunications operators and other customers through engaging in turnkey projects and subcontracting projects.
Q4. Who are the major shareholders of China Comservice?
China Telecommunications Corporation is our controlling shareholder which holds 3,559 million domestic shares, representing 51.4% of our total issued shares. In addition, China Mobile Communications Corporation, China United Network Communications Group Company Limited and China National Postal and Telecommunications Appliances Corporation hold 608 million, 236 million and 131 million domestic shares, representing 8.8%, 3.4% and 1.9% of total issued shares respectively. The public holding is 2,391 million H share, representing 34.5% of our total issued shares. (Please refer to "Shareholding Structure" for more details)
Q5. What are the telecommunications infrastructure services provided by China Comservice?
The Group is the largest telecommunications infrastructure service group in the PRC, providing a full range of telecommunications infrastructure services to telecommunications operators in China and overseas. These services include planning, design, construction and project supervision for fixed line, mobile, broadband and support systems. The Group also provides integrated solutions for ancillary communications networks and integrated informatization solutions for domestic non-operator customers such as government agencies, industrial customers and SME's, as well as overseas customers. (Please refer to "Business Overview" for more details)
Q6. What is the distribution service under Business Process Outsourcing (BPO) Service?
Distribution service means distribution of telecommunications services and products. The distribution services of the Group include the wholesale and distribution of communications machineries and handsets, logistics, procurement agency services. Our major customers are telecommunications operators, telecommunications equipment manufacturers, government agencies and medium to large-sized enterprises. (Please refer to "Business Overview" for more details)

As an integrated support service provider, our provision of distribution service enables us to cover both front end and back end services all along the value chain of telecommunications operator customers. This helps us to provide integrated services serving all aspects of the value chain, strengthen our competitive advantage of comprehensive one-stop service provision and promote our service value, therefore improving our customer loyalty and benefiting our long term business development.
Q7. What is the ACO service?
ACO means Applications, Content and Other services. The Group provides system integration, software development, system operation and maintenance support, value-added services to the domestic telecommunications operators, industrial customers and etc. (Please refer to "Business Overview" for more details)
Q8. Does the Company provide share options to its employees?
As a long term incentive and according to the regulations of the government, our Company adopted a share appreciation rights (SAR) scheme to align the interests of target employees with the Company. Under the scheme, a SAR constitutes the right to receive an amount of cash equivalent to the appreciation, if any, in the fair market value of an H share of our Company and the exercise price of the SARs. No shares will be issued under the scheme; accordingly, the shareholding of the shareholders of the Company will not be diluted by any grant of SARs.

Last Updated: 31 Oct 2014